Perry takes tax plan to business group

AUSTIN - Gov. Rick Perry on Tuesday solicited business support for an overhaul of state taxes and said it would be a mistake for legislators to simply use a $4.3 billion surplus to provide limited cuts in school taxes when they convene April 17.

"I say let's not substitute speed for substance," Perry told the Texas Association of Manufacturers, a new business group that offered support for the concept of a broad-based business tax that the governor is expected to offer to lawmakers.

The new business tax is expected to be formally endorsed next week by a study commission appointed by Perry.

It would replace the franchise tax, now paid by only a limited number of corporations, with a broader tax at a lower rate, which would apply to all but the smallest of corporations and professional partnerships.

As outlined by former Comptroller John Sharp, the commission's chairman, the new tax would help pay for a reduction of about one-third in local school property taxes. It also would help the Legislature, which Perry is calling into special session, meet a June 1 deadline, set by the Texas Supreme Court, for school funding changes.

Perry noted that a number of legislators would rather use a $4.3 billion surplus, forecast by Comptroller Carole Keeton Strayhorn, as a "ticket on a fast train" out of town.

But, he said, that approach would provide for a lower, one-time-only cut in school taxes that could soon disappear.

"It may be more of a challenge to reach an agreement on comprehensive tax changes, but it is a challenge we should take head-on because it is the right thing to do," Perry said.

The governor spoke to the inaugural luncheon of the Texas Association of Manufacturers, a business group claiming 25 members in various industries from paper and consumer goods to oil companies and snack foods.

"Right now we have an historic opportunity ... to revamp our Texas tax system," said Tony Bennett, chairman of the new group and vice president of Temple-Inland Inc., one of its member companies.

He said the group was "encouraged by the direction of the (tax) plan" outlined by Sharp and will be involved in the legislative process during the special session.

Lt. Gov. David Dewhurst, who also addressed the group, agreed with Perry that legislators shouldn't simply try to use the budgetary surplus to "buy down" school property taxes.

But Dewhurst stopped short of endorsing the emerging business tax proposal, and he continued to push for a broader agenda for the special session.

Any tax bill must originate in the House, and Speaker Tom Craddick, in a written statement, said he wanted to wait for the Sharp commission to make its report.

Noting the commission was expected to recommend using at least some of the surplus on property tax relief, Craddick said he was meeting with House members "to determine the best course of action."

Dewhurst wants Perry to allow legislators to make public education improvements.

But the governor said he will insist that lawmakers fix the school finance problem before he will consider expanding the agenda.

Sharp has said the new business tax would raise about $4 billion of the $5.8 billion a year that will be needed to lower the cap on school operating taxes from the current $1.50 per $100 valuation to $1. School debt service taxes, which can go above the $1.50 cap with local voter approval, wouldn't be affected.

The commission also may recommend a $1-per-pack increase in the state cigarette tax.

Companies would have two options for deductions from the new business tax, which would be based on their gross receipts.

A company could deduct payroll, health care, pensions and other employee benefits up to $300,000 per employee.

Or a firm could deduct its raw materials and other costs of goods that it sold.

Retailers and wholesalers would pay one-half of 1 percent of the remaining base, and other companies would pay 1 percent. Sole proprietorships, general partnerships and companies with annual gross receipts of $300,000 or less would be excluded.